INFLATION REPORT May 2010

Transcription

1 INFLATION REPORT May 2010 Research Services Department Bank of Jamaica 16 November 2010

2 CONTENTS A. NOTE: May 2010 i B. APPENDIX: TABLE 1A: Jamaica Headline Inflation Rates 1 TABLE 1B: CPI without Food & Fuel (CPIFF) 2 TABLE 1C: CPI without Agriculture & Fuel (CPIAF) 3 TABLE 1D: Trimmed Mean Core Inflation 4 TABLE 2: Regional Inflation 5 TABLE 3: Contribution to Inflation 6 TABLE 4: Annual Contribution to Inflation 7

3 Monthly Inflation Report May 2010 Overview The outturn for headline inflation in May was 0.6 per cent. This brought the calendar year to date inflation to 6.2 per cent which was higher than the 2.6 per cent recorded in the comparable period of The 12-month point-to-point inflation of 14.1 per cent, was significantly higher than the 9.6 per cent recorded at the end of May Inflation over the next few months should continue to be dominated by higher international commodity price movements, restrained domestic demand and supply conditions. Supplies of domestic agricultural produce have begun to show signs of recovery from a prolonged drought. Nonetheless, potentially adverse weather conditions in the upcoming hurricane season could negatively affect domestic production and raise related prices. The forecast for inflation for the June quarter remains in the band of 2.5 per cent to 3.5 per cent. The foreign exchange market appreciated in May, reflecting generally low demand for US dollars among authorised foreign currency dealers and cambios. This appreciating trend was at a slightly faster pace than the previous month. Financial Markets & Monetary Conditions The appreciating trend of the Jamaican Dollar vis-àvis the US Dollar seen since March 2010 continued in May. On 14 May, the Government began accepting subscriptions on a 4-year fixed rate Benchmark Investment Note. The investment offer was for a coupon rate of per cent, which was 50 basis points lower than a JDX instrument with the same tenor offered in February. The Public Sector Foreign Currency Facility, by which the Central Bank intermediates the demand for foreign currency by public sector institutions, reflected net inflows of US$14.5 million as at end-may due to low public sector demand. Similarly, lower overall domestic demand resulted in, the end-month selling rate of the Jamaica Dollar vis-à-vis its US dollar counterpart appreciating at a faster pace than that experienced in April, and compared to stability in February. However, NIR decreased by US$60.7 million to US$ million for the month. At the end of May, the Gross International Foreign Reserves (GIFR) stood at US$ million, US$59.7 million lower than the stock at the end of the previous month. The GIFR at end-april represented 17.3 weeks of imports of goods and services, compared to 17.7 weeks at end-april. There were contractions in all monetary aggregates except for M2 in the review month. Real M1 and M3 decreased by 2.0 per cent, and 0.2 per cent, respectively, while M2 increased by 0.2 per cent. In the corresponding month of 2009 all three monetary aggregates decreased by 0.3 per cent. Domestic Demand Domestic demand conditions continued to reflect general weakness. In May real GCT receipts and credit card receivables declined by 17.8 per cent and 0.4 per cent, respectively. The large reduction in GCT receipts reflected a return to normal levels following the seasonal revenue collection drive in March. We note that although GCT decreased significantly for the month, the smooth series showed a smaller contraction of 3.4 per cent. 1 The 12-month change in real GCT receipts, however, reflected an increase of 15.9 per cent, while real credit card receivables decreased by 10.7 per cent. The general pattern remained one of sluggish demand and constrained credit usage as incomes continue to fall. Figure 1: GCT Collection and Credit Card Receivables J$million Feb-08 Apr-08 GCT(Real) GCT(Real)Sm CC Recvbles (Real) Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Apr-10 Domestic Supply Data on supplies of domestic agricultural produce indicate a general contraction in vegetable and starchy foods supply (see Figures 2 & 3). 2 As a GCT returns are smoothed to remove the volatility in the series that results from the fact that many retailers file returns with a lag. 2 Domestic agricultural produce, namely starchy foods, vegetables and fruit, account for more than a fifth of Food & Non-Alcoholic Beverages, the largest division in the consumption basket (37.5 per cent). i

4 Monthly Inflation Report May 2010 consequence, the average price of starchy foods increased by 3.6 per cent for the month. This impact was further compounded by the 1.3 per cent increase in the price of vegetables. Figure 2: Supply of Vegetables thyme callaloo carrot pumpkin tomato cabbage tonnes May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 May-10 Source: Rural Agricultural Development Agency (RADA) Figure 3: Supply of Starchy Foods dasheen spotato yyam(rhs) tonnes May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 May-10 Source: Rural Agricultural Development Agency (RADA) Industrial electricity consumption in May 2010, which is used as an indicator of industrial production, increased by 3.0 per cent relative to April Also, sales of industrial electricity in May 2010 were 1.8 per cent higher than levels attained in May 2009 (see Figure 4). The current production level remains above the historical average. The production levels appear to have recovered from the initial shock of the crisis in Costs In May 2010, the prices of the major imported commodities, except for corn, reflected declines. Crude oil, wheat and soybeans prices decreased by 12.4 per cent, 2.3 per cent and 1.0 per cent respectively, while corn prices increased by 4.0 per cent. Only wheat reflected a price change in the same direction as the previous month, however, the decline for May was significantly greater than Figure 4: Industrial Electricity Consumption Billion MwH Industrial Electricity Sale Chart Title Poly Trend Jun-10 Oct-09 Jun-09 Feb-09 Oct-08 Jun-08 Feb-08 Oct-07 Jun-07 Feb-07 Oct-06 Jun-06 Feb-06 Oct-05 Jun-05 Feb-05 Oct-04 Jun-04 Feb-04 the previous month. All other commodities reflected a reversal in price changes. Crude oil prices reflected the largest change which was attributed to an appreciated US Dollar against its major trading partners, stemming from developments surrounding the financial crisis in Greece. Real wages, as proxied by CPI deflated PAYE returns, decreased by 5.8 per cent in May 2010 relative to April Similarly, real PAYE returns decreased by 26.8 per cent for the 12-month period to May 2010 (see Figure 5). The overall declining trend in PAYE is consistent with the current economic environment and corroborates the weak aggregate demand suggested by other variables. Consumer spending power continues to deteriorate and should be a notable countervailing pressure on inflation going forward. Figure 5: Trends in PAYE Returns J$millions Jan-08 Real PAYE Mar-08 May-08 Jul-08 Sep-08 Nov-08 Chart Title Poly Trend Jan-09 Consumer Prices The 0.6 per cent inflation for May largely reflected the impact of higher food prices and electricity costs. The main contributor was food that accounted for 50.4 per cent of the month s inflation. This was mainly due to starchy foods and vegetables that increased by 3.6 per cent and 1.3 per cent, respectively. All other food Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 ii

5 Monthly Inflation Report May 2010 items reflected marginal price increases. The second largest contributor was Housing Water Electricity Gas & Other Fuels which accounted for 26.8 per cent of the month s inflation. This was mainly influenced by higher prices for electricity, gas and other fuels as well as rental rates which increased by 1.5 per cent and 2.0 per cent, respectively. The price of Water Supply & Miscellaneous Services however contracted, leading to 3.6 per cent offsetting of the total inflation. Monthly core inflation, as at May 2010, as measured by the change in the CPI excluding agriculture and fuel (CPIAF), CPI excluding food and fuel (CPIFF) and the trimmed mean was approximately 0.4 per cent, 0.3 per cent and 0.4 per cent, respectively. Both the CPIAF and the CPIFF were, on average, lower than comparable measures at April The trimmed mean measure however, experienced an increase relative to the previous month. Both CPIAF and CPIFF continued to decline following an uptick in the previous month. That uptick was mainly attributed to some administered price adjustments and tax measures (see Figure 6). The general downward trend in core measures, to a great extent, reflects the persistent weak demand conditions as highlighted by the abovementioned indicators. Figure 6: Monthly Changes in Core Measures 2.5% 2.0% 1.5% DTM DCPIAF DCPIFF the range of 7.5 per cent to 9.5 per cent for FY 2010/11 (see Figure 8). The risks to the forecast are balanced, with upside risk stemming from possible adverse weather conditions which may negatively affect domestic production. However, on the downside, lower demand impulses as a result of further declines in real wages and consumer sentiments are expected to temper upward impulses to inflation. Figure 7: Inflation forecast (%) Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Figure 8: Forecast versus Target Jan-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 % 1.0% 0.5% % 10.0 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Inflation Outlook For June 2010, inflation is forecasted to be in the range of 0.0 per cent to 1.0 per cent. This forecast primarily reflects increased prices among agricultural items mainly attributed to lagged weather impacts on vegetables and some starchy foods. Further, inflation in June 2010 should reflect higher transportation costs. The resulting June quarter inflation forecast remains in the range 2.5 per cent to 3.5 per cent. Alongside declining international commodity prices during May 2010, weak domestic demand conditions continue to restrain inflation. In this context, the projection for the annual inflation rate remains within Jun-09 Aug-09 Oct-09 Dec-09 Apr Feb-06 May-06 Aug-06 programme target low er bound Nov-06 Feb-07 May-07 Aug-07 Nov-07 actual/proj target upper bound Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 May-10 Aug-10 Nov-10 Feb-11 iii

6 APPENDIX Inflation Tables

7 Table 1A JAMAICA: HEADLINE INFLATION RATES May / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD C.P.I AVG. C.P.I % change % change % change % change % change % change % change Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Mar Apr May / December 2006 = 100 * Point to Point # Moving average Source: STATIN Page 1

8 Table 1B JAMAICA: CPI WITHOUT FOOD AND FUEL May / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-FF Avg.CPIFF % change % change % change % change % change % change % change Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Mar Apr May /January 2000 = 100 * Point to Point # Moving average Source: BOJ Page 2

9 Table 1C JAMAICA: CPI WITHOUT AGRICULTURE AND FUEL May / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-AF Avg.CPIAF % change % change % change % change % change % change % change Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Mar Apr May /January 2000 = 100 * Point to Point # Moving average Source: BOJ Page 3

10 Table 1D JAMAICA: TRIMMED MEAN CORE INFLATION May / 3 Month Monthly 3 mth* 3mth# 12 Month* 12 Month# FYTD CYTD CPI-TRIM Avg.TRIM % change % change % change % change % change % change % change Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Mar Apr May /January 2000 = 100 * Point to Point # Moving average Source: BOJ Page 4

11 Table 2 Regional Inflation May-MTH GKMA OUC RUA Inflation(%) Inflation(%) Inflation(%) 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINTENAN Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 5

12 Table 3 Component Contribution to Inflation May Weight in Monthly Weighted % Contrib'n the CPI Inflation(%) Inflation to Inflation 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINT Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 6

13 Table 4 Annual Component Contribution to Inflation May Weight in Monthly Weighted % Contrib'n the CPI Inflation(%) Inflation to Inflation 01 FOOD & NON-ALCOHOLIC BEVERAGES Food Bread and Cereals Meat Fish and Seafood Milk, Cheese and Eggs Oils and Fats Fruit Vegetables and Starchy Foods Vegetables Starchy Foods Sugar, Jam, Honey, Chocolate and Confectionery Food Products n.e.c Non-Alcoholic Beverages Coffee, Tea and Cocoa Mineral Waters, Soft Drinks, Fruit and Vegetable Juices ALCOHOLIC BEVERAGES & TOBACCO CLOTHING & FOOTWEAR Clothing Footwear HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS Rentals for Housing Maintenance and Repair of Dwelling Water Supply and Miscellaneous Services Related to the Dwelling Electricity, Gas and Other Fuels FURNISHINGS, HOUSEHOLD EQUIPMENT & ROUTINE HOUSEHOLD MAINTE Furniture and Furnishings (inc. Floor Coverings) Household Textiles Household Appliances Glassware, Tableware and Household Utensils Tools and Equipment for House and Garden Goods and Services for Routine Household Maintenance HEALTH Medical Products, Appliances and Equipment Health Services TRANSPORT COMMUNICATION RECREATION & CULTURE EDUCATION RESTAURANTS & ACCOMMODATION SERVICES MISCELLANEOUS GOODS & SERVICES ALL DIVISIONS Page 7